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Secrets of Market Segmentation in a Nutshell

What is meant by market segmentation?Marketinstance, carefully dissect their databases
segments consist of groups of people orin terms of purchase behavior. Other
organizations that are similar in terms ofsegments are based on consumers' motivations
how they respond to a particular marketingand concerns. Marketer choose this because
mix or in other ways that are meaningful formotivations and concerns are what cause
marketing planning purposes.The entire fieldconsumers to act on an offer.We don't think
of market segmentation is based on this idea,that there is only one "correct" way of doing
that consumers have differing needs. Theysegmentation research, nor that there is a
will find value in different products. Theysingle set of segments waiting to be
will respond differently to marketing"discovered." While the analysis needs to
communications. They will gravitate towardemploy objective statistical methods, any
different price points.Because of this,number of judgments, preferences and
businesses operate more efficiently if theypractical considerations go into the design
can act on those differences. A businessof the process and the final determination of
that tries to offer a single undifferentiatedthe segment structure. The same dataset can
product with generic marketing support willyield different segments.Market segmentation
always lose out to more nimble competitorsspotlights opportunities for health plans to
who have specific targets and know how toimprove marketing and sales, staff training,
serve them.We often work for health plans.customer service, new enrollee intake,
In the Medicare Part D world for instance,business planning, and public relations. It
health plans are struggling to make sense outwill be used by health plans that want to
of new regulations while meeting very tightassure they emerge from this period of
deadlines. But today's difficulties aredramatic Medicare market change as a coverage
going to give way to a market whereprovider of relevance and viability. Part of
segmentation will be of great benefit becausethis means achieving sales and marketing
mass marketing will not work.Which Segment?Itgoals. Part of this means establishing a
is obvious that all competitors cannot targetmarket position where consumers think of you
the same segment and succeed. A commonas you'd like them to think of you.Compared
mistake is to assume that you must focus onto other forms of marketing research, the
the "heavy buyers" who, in reality, are oftensample sizes for segmentation studies tend to
not the most profitable group. For example,be large. The simple reason is that you need
a consulting firm may decide to foregoto be able to profile multiple sub-samples
targeting Fortune 500 (TM) firms that are(the segments) with a high degree of
fiercely contested by the Big Four accountingprecision, rather than just the total sample.
consulting firms and instead pursue middleIt is unusual to use fewer than 500 and not
market firms. "Sub prime" lenders and creditunusual to use 2,000-3,000.AnalysisThe most
card companies know exactly who theircomplex and opaque part of segmentation
prospects are, and do not bother advertisingresearch is the derivation of the
in Money magazine or funding publicsegments-that literally means dividing the
television shows. Part D players may findsample into a small number of exclusive
market niches among seniors with, forclusters. This is almost always done by
example, private Medigap policies andapplying some form of statistical cluster
specific interests or needs that the plan cananalysis. The analyst will typically try
address.For health plans, market segmentationseveral different cluster "solutions." While
is not common. Part of this is due to healththere are objective statistical measures of
plan cultures developed to serve largethe quality of a cluster solution, they are
employer-based health plans and retirees.no more important than informed managerial
But Medicare Part D is an unprecedentedjudgment. Researchers oftenl offer two or
public-private effort to create a consumerthree possibilities to discuss.The "right"
market. And Medicare's Part D program isnumber of segments is subjective, but in
just one element of a far reaching effort topractice companies tend to settle on four to
use private health plans to control Medicareeight segments. In a diverse, complex, and
expenses. We believe the marketlucrative category more might be called
understanding developed through segmentationfor.Agreeing on the number of segments, as
will serve in a variety of ways.Identifyingwell as the labels that will be attached to
and targeting one or a few segments insteadthem, always requires careful study of their
of the entire market allows the firm to usefull profiles. While the segments may be
its resources more effectively. Marketdefined with one class of basis variables
segmentation means products and messages more(e.g. attitudes about fashion and shopping),
aligned with the needs of selectedyou always need to describe the segments in
consumers.Researching SegmentsSome type ofterms of other variables (e.g. demographics,
systematic research is required as aspending, media preferences, preferred
foundation for market segmentation. Mostbrands) that were not part of the definition
often, this research entails a sample surveyof the segments.ApplicationAn important
which should be done by researchdeliverable from most segmentation research
experts.Segmentation research addresses a setis a tool for classifying other consumers
of  fundamental  questions:into the segments. This could be a formula
where by asking a small number of questions
1.  How  many  segments  are  there?you can place a "new" consumer in one of the
segments. It could be a set of logical rules
2.  How  large  is  each  segment?["if combined account balances >$10,000 +
have at least three accounts + non-mortgage
3.  How  do  you  define  the  segments?debt < $20,000: assign to segment
G"].ConclusionMarket segmentation is a
4. How do you describe the segments?Segmentsfar-reaching strategy that can benefit
are typically defined by dimensions suchplayers.The underlying rationale is to use
as:- Behavior-such as the frequency ofyour resources more efficiently by serving
purchasing, total spending, or the mixture ofconsumer needs better. The mechanism is to
stores shopped (switching, investigating,treat the market as consisting of multiple
comparing, delegating decisions),segments with different needs, rather than as
or- Characteristics-such as geodemographicsa mass market where "average" really suits no
for consumers or SIC codes for businessesone very well.The research requires a sample
(health conditions, subsidy status, currentsurvey. It defines and describes segments
coverage status), or- Attitudes-such asfrom which the health plan can choose one or
financial sophistication, fashionmore targets. We believe playser in the new
orientation, or disposition to adopt newMedicare market are especially ready to get
technologies (interest, optimism).Themore "bang for the buck" by more precisely
variables that are used to define themeeting segments' needs and by using
segments are called the "basis." The basismarketing tools to which that segment will
is chosen in light of how the segmentationrespond.
will be applied. Direct marketers, for



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